2014 AH

In the Summer of 2012 when "Financial Repression" was all the rage, I appeared on SOTS with Rick and Ira. They both advocated clinging to low (record) yielding bonds. I suggested that Financial Repression was a choice and after a 35 year run, buy anything else.

Last Summer, we held a conference call for Contrarian Corner Members that centered on the significance of the Spring Bond Rout. We believed the event was a significant signal and although some rates- especially those implied by Eurodollars - where too high, a bounce should be seen as exit. Eurodollars (and 12 month LIBOR sets) proceeded to make new life of contract highs (lows) without Treasury yield confirmation. Our friend and guest contributor, Guillermo Roditi mentioned at the time that the Fed had essentially bought up all the remaining" negative convexity duration death star" notes so the next move - if/when it came- would be more orderly. CS mortgage giant Harley Bassman penned a missive today highlighting these facts.

We see 2014 as year 1 A.H....After Halt. Taper will wind up an insignificant fad on the dust heap of monetary history. We are going to find out if the real cost of the Fed's programs has been the exit of all other relevant players from the system. QE turned out to be an attenuated war of attrition on free markets and price discovery. Now, at long last, the one big clumsy actor in the room is leaving. We say, "Don't let the FAFRRRF hit you on the way out."